I agree, JJ. The Barclay's "analysis" has a tone that appears to be very knowledgeable and well informed re UTC. But, the shallowness of that apparent understanding of UTC is betrayed by the reference to the importance of Pratt's C17/F117 business which really is quite insignificant for Pratt and not even worth mentioning for UTC as a whole..
Morningstar (which I pay for) still has UTX "fair-valued" at $120 and says long-term prospects are solid. Morningstar says "consider" buying at $84. At $90 UTX is 25% off its recent high....surely in bear territory. Also, at ~ $84 UTX's dividend yield would be 3%. Those dividend checks keep coming (and rising) while you wait. Rising interest rates which are likely to continue for years hit multi-nationals like UTC hard because of the rising dollar. Nothing you can do about that. This is a good test for Greg Hayes, in my opinion.
Good value......will cost roughly 50% of Nortek's annual revenue. When UTC bought Chubb and Kidde as it entered the security business it got both for a song as they weren't making any money. Nortek is similar. In short order UTC will make Nortek's ~ $2.5 billion business profitable. It's a small deal....but, if UTC makes an offer it will be because the latent value is hard to pass up.
biker, airborne makes a good point re distributions from a 401(k) plan. As for GE...a great company which I own,..GE' like UTC, makes stuff the world must have. Two things about GE at $60: That was a ridiculous price for GE at the time considering its earnings...wildly over-prices due to the Welch premium; Secondly, at the time GE had become a bank. GE is selling off 90% of its banking business, as you know; and is returning to its roots. You are correct. Some companies "never" come back. You've got to think about what you are doing. To suggest that UTX won't come back is a dooms day scenario. All of UTC's products are needed for modern life, globally. Only world-wide calamity will prevent UTC from doing well. In fact, UT has already survived such calamities throughout the 20th century. Of course, at age 68 one does not have decades to wait...but you could easily have two decades.
biker, I respect your views and opinions. But, the way you speak of stock ownership appears based on flawed reasoning. A person buying UTX when it was $120 hasn't lost a dime. They have acquired a percentage ownership in a company...that percentage has not changed with the stock price now at about $90. They receive the same dividend as well. If they choose to sell at $90, of course they will have lost money. And, of course, someone buying at $90 got a better deal. Nonetheless, for the buyer at $120 no money has been lost. They own a stake in a company that has gone through the great Depression, world wars, recessions....a company that makes things the world cannot live without, including China. At age 68 you may very well have 20 years still ahead of you. Think long.
A320neo success of vital importance to P&W and UTC.....represents Pratt's reentry into big-time commercial engine production after a four decade slide.
Correct. The Board has authorized a 75 million share buy-back...a bit less than 10% of the share. And the cash available from the SA sale will be about $6 billion after tax.
I have a hard time understanding Darnis being forced out. He's only 55 and has overseen a huge improvement in profit margins in the Climate, Controls and Security business from less than 10% to over 15% in just five years. Also, there are 16 people in his segment with the title of "president" of this or that. Surely all 16 can't report to Hayes. So, Darnis has to be replaced in some way. Darnis' "retiring" is being linked to Otis' poor 2nd Q performance. Hard to understand.
While you would rather not be fined $148 million......that figure is lunch money for UTC which will "net" over $6 billion from the SA sale.
The UTC Board has authorized a buy-back of 75 million shares, as I recall...and Hayes said that the proceeds from the SA sale would be used for that purpose...but not until next year. At year-end UTC had over $5 billion in cash and already has purchased $3 billion in stock. Since a larger buy-back is planned, it seems to me that there will likely be no better time than right now. So why wait? UTC shares are off ~ 25% from their high of just a few months ago. The stock price is being hammered by the steady stream of lousy news. This is all short-term stuff. At ~ $100 the PE based on 2015 earnings is about 15...a good buy.
Kid, occasionally you're thinking is a tad shallow. Pratt is entering one of the most significant periods in its history. As you point out, profit in the engine business comes entirely from aftermarket sales. And the most critical issue of aftermarket sales is the installed engine base. Pratt's installed base peaked about 30 years ago and has been in decline ever since...reflecting primarily the dominance of the Boeing/GE 737 for which Pratt is not involved...as well as the dominance of GE and RR in the very large engine category ( 100,000 lbs thrust) for which there is no Pratt engine. Because Pratt's legacy engines have been removed from service over the decades, the installed base so vital for aftermarket sales has been steady, long-term decline. But, the decline in Pratt's installed base ends its decade-long decline this year and begins to climb for the first time in decades in 2016. This is not merely a projection; but is based on orders in hand for Pratt's new GTF class of engines. Indeed, Pratt projects a sales volume of $20 billion in five years, up from $14 billion in 2014. Accordingly, in the 2020s and beyond Pratt's highly profitable aftermarket sales will increase dramatically. Being close to Pratt, you know all this. But, for those that view the long term as what happens this afternoon, things like this don't matter at all. For "investors" it matters plenty.
Steve, a company that is "grossly mismanaged" does not report the outstanding profit margins UTC reported yesterday for every one of its businesses. The issue was sales falling well below projections. Do you get that? Much of that was due to foreign exchange. Some was do to a softening Chinese economy. UTC management cannot control those things...no management can. The very poor forecast of aerospace systems sales was a real gaff for which management deserves all the criticism it has received. Further, as Jet has pointed out, UTX at $125 was priced way above its historical PE of 15. UTX coming down to earth at about $100 is far more realistic than pie-in-the-sky $125. Nonethless, what happened yesterday is painful, indeed. But, to suggest that UTC is poorly managed is way, way over the top. UTC makes stuff the world cannot live without..and at a very good profit margins. The headwinds being faced now are significant and reflect a weak global economy and a strong dollar. The latter issue is likely to worsen as interest rates rise. What do you suggest UTC management should do about that?
For sure, this was a rough day for UTC and Mr. Hayes. But. as for growth...UTC had real growth at constant FX. What hit the company hard was foreign currency exchange. Every business unit reported strong profit margins. What killed the stock was the appearance that UTC was careless assessing market conditions, starting in January and since. Had Hayes stated in January what he's now saying there would not have been an issue. What stunned analysts and tarnished Hayes' reputation more than a little was the constantly changing story as the year plays out. That has not been the UTC way since George David took over many years ago. Since then UTC has been rock solid consistent re its forecasts, never surprising analysts. That came to an end today, just 8 months into Hayes" tenure. Hopefully he learned a lesson that he will never forget. Expect a bit of a bounce back tomorrow....today's decline was a gross over reaction to the short term.
Very thoughtful observation, Jet. Analysts do not like surprises. On the other hand, as Biker pointed out, this is the same team that has been in place for years...not a new group. What may have really bothered people is that Hayes has a reputation of being very conservative...he is known for delivering more than he promises...never the reverse. So, today's backtracking from projections made just a few months ago is a shocker. No one knows this better than Hayes. I look for real action on his part to restore confidence. Costs will be reduced and share buy-backs will accelerate, in my opinion. For certain, when the 3rd Q call is made UTC will not disappoint the analysts. Again, I think your observation is on the mark. The actual figures weren't bad...but the shock to confidence was.
I understand your position. I too am a long, long term holder of UTC stock...and I don't like to see a sharp decline any more than you do. Nonetheless, some perspective is called for, in my opinion. 1) UTC's website contains a slide presentation showing that the profit margin of every single UTC division was strong. The issue is weak revenue caused by global economic weakness...nothing UTC can do about that. 2) Yesterday Morningstar released its annual in-depth analysis of UTC's business. On the basis of that analysis Morningstar increased its "fair value" for UTX to $120/sh. 3) Dividend reinvestment when the stock price is low is a good thing; as I'm sure you know; Finally, 4) UTC is likely to bounce back tomorrow regaining at least a few dollars of today's ~$8 decline. Please understand, I appreciate your angst...I'm not happy to see "my" stock get walloped as it did today. But, UTC's businesses are solid and every one of them is very profitable. The pain we are experiencing is caused by global economics, not fundamental problems with UTC.
Not the way to look at it. Dividends are cash money, paid to you.....in your bank. If dividends matter you must be an "investor" willing to hold UTC. If that is the case this morning's drop of $7-$8 dollars hasn't cost you a penny unless you planned to sell in the near term. You still own the stock...its price will go up and down....meanwhile UTC's solid, growing, well-covered dividend payment will continue to show up in your bank account. Hayes is a financial guy. You can be certain that steps will be taken in the near term to boost earnings per share, e.g., restructuring, share buy-back, etc. Remember, Hayes was Chenevert's guy. It makes no sense to think that had Louis remained things would be different.